{"id":174654,"date":"2022-08-17T05:03:07","date_gmt":"2022-08-17T04:03:07","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=174654"},"modified":"2025-07-02T00:40:43","modified_gmt":"2025-07-01T23:40:43","slug":"share-buyback","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/corporations\/share-buyback\/","title":{"rendered":"What is a Share Buyback in England?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">If you own a company or are a<\/span> company<span style=\"font-weight: 400;\"> director, you may want to initiate a share buyback. Notably, a company cannot simply buy back outstanding shares when it wants to. Instead, you must meet certain conditions and follow specific processes. This article will provide an overview of how a company can purchase its own shares.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Redeeming Shares vs Share Buyback<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">It is essential to distinguish between a company:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">redeeming allotted redemption shares; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">purchasing its own shares.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">A company issues redemption shares with the express intention of redeeming them from the shareholder in exchange for some form of consideration (usually cash). These are distinct from non-redeemable shares, the most common of which are <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/ordinary-redeemable-preference-shares\/\"><span style=\"font-weight: 400;\">ordinary shares<\/span><\/a><span style=\"font-weight: 400;\">. The laws that govern redemptions and share purchases likewise differ.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The law has broad restrictions on the ability of a company to reduce its share capital in what is known as the doctrine of share capital maintenance. This doctrine exists to protect your company\u2019s creditors. The effect is that creditors can look at a company\u2019s balance sheet and work out the minimum value of assets the company must keep on hand to pay its debts.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Purpose of a Share Purchase\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">For a <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/public-vs-private-company\/\"><span style=\"font-weight: 400;\">private company<\/span><\/a><span style=\"font-weight: 400;\">, there is no readily available market of buyers ready to purchase ordinary shares, making it harder for shareholders to exit their investment in the company. Unlike redemption shares, there is no right attached to the shares that allow the shareholder to redeem them for cash. This is one reason why a company is permitted to purchase its own shares from a shareholder.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Other reasons include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">increasing the size of the pool from which a company can issue dividends;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">rebalancing the company\u2019s balance sheet to more accurately reflect the true price of its assets if the company\u2019s assets have substantially lost their value; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">increasing the value of the individual shares following the buyback (though in practice, this is more relevant for public companies).\u00a0<\/span><\/li>\n<\/ul>\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white 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       } else {            triggerPostRender();        }    } );} );\n<\/script>\n<\/div>\n<\/div>\n<div id=\"content-next\"><!-- scroll anchor --><\/div>\n<h2><span style=\"font-weight: 400;\">Process for Share Buybacks\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A company has three different ways it can buy back its own shares:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">using its profits;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">using the proceeds of a recent share allotment; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">using a special legal procedure known as the <\/span><i><span style=\"font-weight: 400;\">De Minimis <\/span><\/i><span style=\"font-weight: 400;\">provisions.<\/span><\/li>\n<\/ul>\n<h2><span style=\"font-weight: 400;\">Using Profits and the Proceeds of a Recent Allotment\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">If your company wishes to initiate a share buyback, consider whether either of the following applies:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">your company has remaining profits; or\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">your company has cash on hand from a recent share allotment.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">If either is true, you must use these funds before your company can dip into its own share capital.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, you must first meet the following conditions:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">the <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/articles-of-association\/\"><span style=\"font-weight: 400;\">company\u2019s articles<\/span><\/a><span style=\"font-weight: 400;\"> have not restricted its ability to initiate a buyback;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">all of the shares the company proposes to issue are fully paid up; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">the company will have a sufficient value of remaining share capital following the share purchase.<\/span><\/li>\n<\/ul>\n<h3><span style=\"font-weight: 400;\">Process\u00a0<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">If your company meets the above conditions, the next step involves:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">seeking shareholder approval through an ordinary resolution (or, if specified in the articles, a <\/span><a href=\"https:\/\/legalvision.co.uk\/corporations\/ordinary-vs-special-resolution\/\"><span style=\"font-weight: 400;\">special resolution<\/span><\/a><span style=\"font-weight: 400;\">); and<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">passing a resolution that specifies the exact terms of buyback.\u00a0\u00a0<\/span><\/li>\n<\/ul>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400;\">The law surrounding shareholders\u2019 ability to vote and authorise a share purchase is quite complex. Therefore, you may wish to seek the advice of a solicitor.\u00a0<\/span><\/p>\n<\/div>\n<p><span style=\"font-weight: 400;\">Finally, company directors must file certain documents with <\/span><a href=\"https:\/\/www.gov.uk\/government\/organisations\/companies-house\"><span style=\"font-weight: 400;\">Companies House<\/span><\/a><span style=\"font-weight: 400;\"> within 15 days of the buyback.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">The <\/span><i><span style=\"font-weight: 400;\">De Minimis <\/span><\/i><span style=\"font-weight: 400;\">Procedure\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The <\/span><i><span style=\"font-weight: 400;\">De Minimis <\/span><\/i><span style=\"font-weight: 400;\">procedure provides a narrow set of conditions for a company to purchase its own shares from its share capital. The value of the shares that can be purchased in a single financial year cannot exceed the value of:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">\u00a315,000; or<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">5% of the company\u2019s share capital, whichever is lower.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Before the company can initiate a <\/span><i><span style=\"font-weight: 400;\">De Minimis <\/span><\/i><span style=\"font-weight: 400;\">procedure for buying back its own shares, you must first meet the following conditions:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">the company\u2019s articles must not restrict its ability to initiate a buyback;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">it must use any profits or proceeds from a recent share allotment first; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">the accounts used to verify the profits must have been prepared no more than three months before the date of the directors\u2019 solvency statement.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">There are other accounting requirements the law imposes on directors to verify. Therefore, companies should instruct a financial adviser before proceeding with a share buyback under the <\/span><i><span style=\"font-weight: 400;\">De Minimis <\/span><\/i><span style=\"font-weight: 400;\">provision.\u00a0<\/span><\/p>\n<h3><span style=\"font-weight: 400;\">Process\u00a0<\/span><\/h3>\n<p><span style=\"font-weight: 400;\">After fulfilling the above conditions, directors must prepare certain documents before a company can redeem shares. These include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">a statement of solvency, which is where the directors attest to the fact that the company can pay its debts for the next 12 months;\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">an auditors report, which an independent auditor prepares; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">a shareholder resolution passed by a special resolution within a week after the directors sign the statement of solvency.\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Further, your company\u2019s shareholders and directors will have to undertake additional steps before the shares can be redeemed with the company\u2019s share capital. A further account is beyond the scope of this article.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Key Takeaways\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">A company may initiate the purchase of its own shares through three different routes:\u00a0<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">using the company\u2019s profits;<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">using proceeds from a share allotment; and\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">through a specific legal mechanism known as the <\/span><i><span style=\"font-weight: 400;\">De Minimis <\/span><\/i><span style=\"font-weight: 400;\">procedure.\u00a0<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">The first two routes require a broadly similar set of conditions to be in place. The third route is more onerous and restricts the total value of shares the company can purchase. In all cases, the company\u2019s directors must undertake formal steps to comply with the law, such as instructing an accountant and a legal adviser.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you need help initiating a share buyback, our experienced <\/span><a href=\"https:\/\/legalvision.co.uk\/corporate-lawyers-lp\/\"><span style=\"font-weight: 400;\">corporate lawyers<\/span><\/a><span style=\"font-weight: 400;\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Visit our<\/span>\u00a0<a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400;\">membership page<\/span><\/a> or call us on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Frequently Asked Questions\u00a0<\/span><\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1660708784255\"><strong class=\"schema-faq-question\"><strong>How does a company purchase its own shares?<\/strong><\/strong> <p class=\"schema-faq-answer\">A company may initiate the purchase of its own shares through three different routes: (1) using the company\u2019s profits; (2) using proceeds from a share allotment; and (3) through a specific legal mechanism known as the <em>De Minimis <\/em>procedure.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1660708795552\"><strong class=\"schema-faq-question\"><strong>What is the difference between redeeming shares and a share buyback?<\/strong><\/strong> <p class=\"schema-faq-answer\">A company issues redemption shares with the express intention of redeeming them from the shareholder in exchange for some form of consideration (usually cash). Conversely, a share buyback is when a company offers to repurchase or &#8216;buy back&#8217; its shares from shareholders.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/174654\" \/>            <input value=\"https:\/\/legalvision.co.uk\/corporations\/share-buyback\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What is a Share Buyback in England?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>If you own a company or are a company director, you may want to initiate a share buyback. Notably, a company cannot simply buy back outstanding shares when it wants to. Instead, you must meet certain conditions and follow specific processes. This article will provide an overview of how a company can purchase its own<a href=\"https:\/\/legalvision.co.uk\/corporations\/share-buyback\/\">Continue reading <span class=\"sr-only\">&#8220;What is a Share Buyback in England?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13461,"featured_media":3163,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"2028,1366,2403,1704,172841,172454","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[28],"tags":[21,100,137,223,435,950],"class_list":["post-174654","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporations","tag-medium-business","tag-articles-of-association","tag-companies-house","tag-large-business","tag-redeemable-shares","tag-share-buyback"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What is a Share Buyback in England? | LegalVision UK<\/title>\n<meta name=\"description\" content=\"If you own a company or are a company director, you may want to initiate a share buyback. 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